Pension could double BTL returns
Research suggests returns from investing in a pension could be double those from Buy To Let property over the next twenty years, says the Mail. This assumes a return from property of 3.5 per cent rental income plus 4.5 per cent a year capital growth, as compared with returns of 6 per cent a year in the pension. The gap in total returns – 435 per cent for the pension as against 237 per cent for BTL – is so large because of the tax relief on pensions and the higher taxes on BTL introduced by the last government.
Longer wait for state pension
Six million people now aged between 39 and 47 will have to wait a year longer to get their state pension, says the BBC. The government announced that the rise in state pension age from 67 to 68 will be brought forward six years to 2037-39. The government said the new rules would save taxpayers £74bn by 2045/46.
Warning on pension freedoms
Many of the one in three people who have taken cash from their pensions since the rules changed in 2015 did so without taking advice, says the Telegraph. It cited warnings from the regulator that it might have to step in, and advisers said many of those who hadn’t taken advice would probably have paid too much tax already or would do so in future. In particular, taking money out of a pension, paying tax on the withdrawal and then putting the cash into an ISA would result in them getting much lower returns on their money.
New research by the London School of Economics says that leaseholders are being overcharged to extend the term of their leases, says the Independent, adding to the perception that leaseholders are being exploited. Recently housebuilders Wimpey had to provide £130 million to extend the leases on properties it had sold, while other buyers of leasehold property discovered their ground rents will double every ten years. The Home Owners Alliance warned that the issue of leasehold properties is worsening the country’s home ownership crisis and accused the sector of “widespread malpractice and lack of consumer understanding”.
Get that longer fix
There has been a sharp rise in the number of borrowers re-mortgaging to secure fixed rates over a longer term, says the Times. Concerns over the effects of BREXIT and a fear of rising interest rates have prompted borrowers to go for 5-year terms or longer rather than the more typical 2-year deal. Many lenders are offering rates of under 2 per cent on 5-year fixes.
Save 18 per cent for a pension
To provide for a comfortable retirement, today’s new employees need to save 18 per cent of their earnings to supplement the flat-rate state pension, according to a think-tank report, says the Financial Times. The actual rates used in auto-enrolment pension savings schemes are far below that level. So, people entering the workforce today face a “monumental savings challenge”, the International Longevity Centre-UK said in its report.
Don’t rush to pay off their debt
Financial Times columnist Merryn Somerset Webb returns to the subject of student debt as the interest rate on student loans has risen to 6.1 per cent. She points to flaws in the system: all British universities charge pretty much the same regardless of how much their graduates will earn, and graduates repay too little from low salaries and too much from high ones. But the key for parents is that any unpaid debt is written off after 30 years (a recent report says 77 per cent of graduates won’t repay the debt in full and write-offs will cost the government £5.9 billion a year). So let them take on the loans, she says, and wait to see if they get a high-paying job: only in that case does it make sense to pay off the debt.
Rise in charitable legacies
There has been a sharp rise in legacies to charities, says the Financial Times. The amount exempted from inheritance tax in 2016 was £840 million, up 79 per cent from the figure five years ago. The main reason, says the FT, is the new tax break introduced in 2012 by George Osborne: the rate of inheritance tax drops from 40 per cent to 36 per cent if charitable legacies are 10 per cent or more of the estate above the £325,000 threshold. The proportion of Wills including charitable legacies has risen from 4.6 per cent in 1997 to 6.4 per cent in 2016.
As tax year end approaches, there is still time to make use of your available reliefs and allowances.
This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.
As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.
It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.